Monday, July 26, 2010

Why not grain?...

If you want to measure the uncertainty and anguish of the consolidation of the beef industry, you don't need to go too much farther than AgWebThe current debate over GIPSA enforcement of new meatpacking regs is well-framed in adjacent posts. 

But the real crux of the matter is familiar: who gets to say what agriculture looks like?
What the Dudley Butlers want isn’t going to work.  Consolidation is being driven by factors well beyond their control. You and I may not like it, but it is helping provide consumers with more affordable, higher quality products. We’re not all going to be able to make a living growing cattle in the future, I suppose. But by what reasoning do we suppose we have a right—a RIGHT!—to do so?
This is, when you boil it down, the same debate we’ve been hearing in recent years about big box stores driving the mom and pop locals out of business. I never believed that a local hardware man had a “right” to force me to pay more for his products. I’m not sure why, then I have a “right” to feed cattle when others can obviously do it better and cheaper.
We have a right to a fair market. A fair chance. We have a right to start the race, but we don’t have a right to win the blue ribbon. [More]
It is curious to me how many in our industry fall back on the lament of "not liking" where the industry is going, but nonetheless would not pry the status quo's hands off the wheel while smaller producers fall under the bus. Impotent sighs of regret strike me as remarkably unhelpful and perhaps short-sighted.

What if the almighty consumer fecklessly drifts to another consumption ideal from "cheap".  I have always considered that a long shot, but given my own buying eating habits, maybe less far-fetched than previously. Could beef be going to bat for a business model that will leave a bad taste in consumer mouths regardless of the flavor of the steak?

Meanwhile, smaller producers see the matter somewhat differently:
Our cattle industry is at a historic crossroad. With the proposed GIPSA rule we can begin to work to rid the marketplace of the ongoing practices that are causing our industry to contract by making sure that our industry receives the full protections Congress afforded us since 1921, but which have yet to be implemented by GIPSA’s proposed rule.
Or, we can continue to believe that the meatpackers have our best interests in mind and do exactly what U.S. hog and poultry producers did. As we all know, the hog and poultry producers did nothing while the meatpackers used their market power to vertically integrate the production segments of those industries and, as USDA data show, the result was a loss of about 90 percent of all U.S. hog producers. [More]
I suspect Steve's point of view will prevail, but I doubt if the rewards to economic rationalism will bring him or the industry all that much satisfaction.

More importantly, if grain producers don't see this as relevant to their sector, they are fooling themselves IMHO.  Cattle producers may be the closest we have to our heritage of independent producers, and if they can be convinced vertical integration is the future, I see few factors that would prevent a duplication in grain production.

The refusal to accept any limitations, to support wholesale restructuring for a few percent of efficiency or growth has pushed into harsh extremes. Regardless, I see no hint of interest in compromise between the factions.

The question for our farm is what strategy do we deploy to cope with the same pressures on our farm?  I see only one sure bet: own the land.


Anonymous said...

Eventually the price of energy will dictate the structure of agriculture and overpower all other factors. Just consider how much anguish there was a short time ago when N and fuel prices went up. Ag in its current form will last only as long as energy stays cheap. Who knows what structure will take its place. But in a larger sense who knows how society will have to restructure when energy becomes expensive and rationed by price.

Anonymous said...

Owning the land may not save you. John consider this. If your neighbors all are part of an integratted ownership program and the elevators are owned by cargill or ADM as well. and you have been the Go it alone guy in the neighborhood, Why does the integrattor have to buy your product? I know guys who are still independent hog producers and I have seen them come back from the packing plant with hogs on their truck because the packer owned hogs overtook their space. Why can't it happen in Grains? Actually I am surprised it didn't happen to grains first. Maybe that was a side benefit of Gov. subsidies. JR

From Virginia said...

Interesting facts and figures here on farm structure/finances:

Anonymous said...

The bottom line is GIPSA is supposed to prevent MONOPOLY. Maybe a monopoly can deliver goods and services cheaper but it is still (or used to be illegal). If an industry must be monopolized ie. natural gas, phone (pre ATT), or electrictity, etc. they must be CLOSELY regulated. It seems better in a free market system to have competition (enough buyers and sellers that no single entity can control price) than to have a "regulated" monopoly.
Karl Marx said the problem with capitalism was competition will result in one entity eventually becoming an all powerful dictator. Maybe we'll see if he was right on that point.

Anonymous said...

More often than not, I find my local hardware store in Willmar MN is a better bargain than the Menards and Home Depot we have in town. Our local lumber yard is also not a bad place to shop. Motivation of employees is a huge bonus and their prices are usually cheaper too.